Engineering Economic Decisions Lecture No. 1
Description: Engineering Economic Decisions Lecture No. 1 Chapter 1 Contemporary Engineering Economics, 6th ed. Copyright 2016 What Is an Engineering Economic Decision? Role of engineers in business Understanding the term engineering economic
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slide1. Engineering Economic Decisions Lecture No. 1
Chapter 1
Contemporary Engineering Economics, 6th ed.
Copyright © 2016<br>
slide2. What Is an Engineering Economic Decision? Role of engineers in business
Understanding the term “engineering economic decision”
An overview of a variety of engineering economic decision problems
Understanding the fundamental principles of engineering economics<br>
slide3. Role of Engineers in Business Create and Design
Engineering Projects Evaluate
Expected
Profitability
Timing of
Cash Flows
Degree of
Financial Risk Analyze
Production Methods
Engineering Safety
Environmental Impacts
Market Assessment Evaluate
Impact on
Financial Statements
Firm’s Market Value
Stock Price<br>
slide4. Engineering Economic Decisions Plan for the acquisition of equipment (capital expenditure) that will enable the firm to design and produce products economically<br>
slide5. What Makes Engineering Economic Decisions Difficult? Estimating a required investment
Forecasting a product demand
Estimating a selling price
Estimating a manufacturing cost
Estimating a product life<br>
slide6. Accounting Vs. Engineering Economy Present Future Past Engineering Economy Accounting<br>
slide7. Common Types of Strategic Engineering Economic Decisions Equipment or process selection
Equipment replacement decisions
New products and product expansion
Cost reduction
Improvement in service or quality
Design decisions<br>
slide8. Fundamental Principles of Engineering Economics Principle 1: A dollar earned today is worth more than a dollar earned in the future.
Principle 2: The only thing that matters is the difference between alternatives.
Principle 3: Marginal revenue must exceed marginal cost.
Principle 4: Additional risk is not taken without the expected additional return.<br>
slide9. Principle 1: A dollar earned today is worth more than a dollar earned in the future. Interest rate = 10%<br>
slide10. Principle 2: The only thing that matters is the difference between alternatives. Irrelevant items in decision-making<br>
slide11. Principle 3: Marginal revenue must exceed marginal cost. Manufacturing cost Sales revenue Marginal
revenue Marginal
cost 1 unit 1 unit<br>
slide12. Principle 4: Additional risk is not taken without the expected additional return.<br>
slide13. Two Factors in Engineering Economic Decisions Time
Uncertainty<br>
Chapter 1
Contemporary Engineering Economics, 6th ed.
Copyright © 2016<br>
slide2. What Is an Engineering Economic Decision? Role of engineers in business
Understanding the term “engineering economic decision”
An overview of a variety of engineering economic decision problems
Understanding the fundamental principles of engineering economics<br>
slide3. Role of Engineers in Business Create and Design
Engineering Projects Evaluate
Expected
Profitability
Timing of
Cash Flows
Degree of
Financial Risk Analyze
Production Methods
Engineering Safety
Environmental Impacts
Market Assessment Evaluate
Impact on
Financial Statements
Firm’s Market Value
Stock Price<br>
slide4. Engineering Economic Decisions Plan for the acquisition of equipment (capital expenditure) that will enable the firm to design and produce products economically<br>
slide5. What Makes Engineering Economic Decisions Difficult? Estimating a required investment
Forecasting a product demand
Estimating a selling price
Estimating a manufacturing cost
Estimating a product life<br>
slide6. Accounting Vs. Engineering Economy Present Future Past Engineering Economy Accounting<br>
slide7. Common Types of Strategic Engineering Economic Decisions Equipment or process selection
Equipment replacement decisions
New products and product expansion
Cost reduction
Improvement in service or quality
Design decisions<br>
slide8. Fundamental Principles of Engineering Economics Principle 1: A dollar earned today is worth more than a dollar earned in the future.
Principle 2: The only thing that matters is the difference between alternatives.
Principle 3: Marginal revenue must exceed marginal cost.
Principle 4: Additional risk is not taken without the expected additional return.<br>
slide9. Principle 1: A dollar earned today is worth more than a dollar earned in the future. Interest rate = 10%<br>
slide10. Principle 2: The only thing that matters is the difference between alternatives. Irrelevant items in decision-making<br>
slide11. Principle 3: Marginal revenue must exceed marginal cost. Manufacturing cost Sales revenue Marginal
revenue Marginal
cost 1 unit 1 unit<br>
slide12. Principle 4: Additional risk is not taken without the expected additional return.<br>
slide13. Two Factors in Engineering Economic Decisions Time
Uncertainty<br>